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A short course of lectures
«Executive finance and strategy»

Content, order and logic of this chapterAnalytics - can there be too much analysis?What do GAAP, FASB, IASB and IFRS mean?The importance of cash records and reportsIn favour of purchasingMissionEquityAre your strategies co-coordinated and aligned?Order and logicManagement accounting. Internal reports and business modelsRevision and learning pointersCapital cash flowsLease versus buy(c) Extrapolation methodsIFRS 12 Disclosure of Interests in Other EntitiesGoing concern - a fundamental concept, also termed an underlying assumptionIAS 7 Statement of cash flowsWhat is meant by 'sensitive' - what levels of sensitivity can be tolerated?TargetThe academic 'accounting framework' definitions(d) Leading indicatorsLogic and orderFinancialThe capital investment strategy - invest for a longer-term returnDetermining controlLinks between financial statements and strategyBT plc Group balance sheetYou cannot do what you likeReview question - interpreting P&L account profilesAudit functionRecord keeping/bookkeepingModelling the futureFinancial position - the balance sheetWorking capital ratiosRevision and learning pointersCompany law requirements re storage and access to recordsInvesting activitiesCommentaryTechniques for interpreting financial statementsContent, order and logic of this chapterTacticBalance sheets - statements of financial positionTheir place in financial statementsDividends per share (DPS)Zero-based budgetingFinancing activitiesLinked parametersBasic financial reports and conceptsAssessing control - investor assessmentRevenueAssetsOther reasons for internal controlAccounting 'rules'. How accounting theory and rules affect the strategic numbersRevision and learning pointersWhat is the objective of financial strategy?Terminology used in this bookExternal auditWhy be in business?Recognition of incomeTrading strategy - acquire and dispose of companiesCosting models - costing for planningEarnings per share (EPS)Considering relationships - analytical reviewMotiveWhat does budgeting mean?Lower margin/higher sales volume strategyThe simple truths from the tablesGoalBedrock conceptsGoing concernCommon types of modelsNon-discounted methods - paybackBudget modelsGAAP, which may cause issues with strategiesLeases where the lessee pays for the use of the underlying asset (Type B leases)Asset lightRecognition and measurementWorked exampleComparisons with external benchmarksAphorismsPrincipal accounting concepts -going concern and accrualsCharts and graphsCost of capitalCompany law and directors' responsibilitiesLeases where the lessee consumes or uses up part of the underlying asset (Type A leases)Order of the chaptersThe statement of cash flows - the three views of business cashHigher sales/volume strategyHigh gearing strategyThe base modelBackground to accounting standardsMaterialityObjective(s)Operating activitiesIncome statements and other comprehensive incomeThe acquisition strategy - investing cash, or better still little or no cash but rather issuing shares, to acquire businesses which may be a bargain or which you can turn aroundWhy budget?Statement of financial position -the balance sheetUK full financial statementsA higher margin (selling price)/lower operating cost strategyBudget reportsLiabilitiesInterpreting financial statementsForeign currency issuesCash: the vital elementRecognition of expensesRatios - presenting one figure relative to anotherMeasurement of the elements of financial statementsThe attitudes and behaviour characteristic of a particular social groupThere is no such thing as 'just a figure'Modelling operational structure, particularly costsSales and costing definitions and modelsNPV or IRR - which should be used?(e) ModellingDevelopments in financial reportingOvertradingInsolvencyLiabilities'Reading' the balance sheetRevision and learning pointersExample CRevision and learning pointersGearing or leverage and the 'magic' of gearingReporting overheads - overhead analysisBudgetingSubstance over formProblems in implementing a ZBB systemMore practice'One at a time' approachMethods of budgetingCorporate governanceHow you might use this bookInterpreting financial statementsLinks between interpretation and financial strategyCommon errors in appraisal cash flowHow much analysis should be carried out?Why have detailed internal management reports?The strategic reportOrder and logicCash flows for trading - working capitalOrder and logicContent, order and logic of this chapterAssetsInterest and loan repayment are includedThe ideas, customs, and social behaviour of a particular people or societyMateriality and relative amountsLiquidity ratio/quick ratio/acid test ratioWhat is meant by 'rate'?Content, order and logic of this chapterAutomating the interpretation - intelligent interpretationExternal and internal audit - prevention of error and fraudMethods of forecastingForecasting methods(a) Incremental budgetingCost of salesNon-discounted methods - accounting rate of return, ROCE or ROIPublished or statutory accountsGross profitInvestment appraisal. Investment strategyStrategyInitial measurementUnderstandability (this word does not pass spell checkers!) and the existence of accounting phenomenaInsolvency - going concern - overtradingLife-cycle costing/whole-life costing strategyCash flow reports - illustrationEarnings yield and dividend yieldAn incremental approachGroup structuresAlignContent, order and logic of this chapterHow to budgetOrder and logicWhere do budget objectives come from?Basic definitionsComparability(f) Guaranteeing the figuresHow the concepts impact on the figures (and restrain some behaviour)What does the BT pic cash flow statement tell us?Strategic drivers of ROIValuesAccruals or matching conceptWhat do balance sheets reveal about a business?Market to book ratioPrudence and strategiesSale and leasebackLinks between cash and financial strategyInvest and sell on a promise strategy - beauty is in the eye of the beholder (or the deceived or delusional!)In favour of leasingFuture reportingA checklist to assist with making clear, actionable reportsWhere cash appears in financial statementsAsset strippingAlternative balance sheet layoutsCurrent ratioCash flow modelsNotes to financial statementsArithmetic of appraisal - discounting cash flowsWhy the emphasis on 'useful in making economic decisions'?Order and logicDefinitions of 'financial', 'strategy' and 'strategic'Structure of the chaptersOrder and logicWhat (discount) rate should be used?Dividend coverEBITDAExample A - XYZ picComparisons with past or budgeted performance or positionThe mundane money-making strategy -cash generation for everCompletenessPrice to earnings ratio (P/E ratio)Special purpose vehicles or entities -off-balance sheet activitiesInterests in unconsolidated structured entitiesThe structure of a statement of cash flowCosting models - costing to calculate full costsWhat underpins financial statements?Purpose of financial statementsThe time value of money and required ratesLower capital employed strategy - 'cheap is good!'Uses of analytical reviewsLinks between management accounting and financial strategyContent, order and logic of this chapterCommon appraisal measuresWhat do successful companies say?What extant accounting standards requireHedging strategiesSunk costsOrder and logicVisionRecognition of liabilitiesHow does making a return on investment link with strategy?Revision and learning pointersRevision and learning pointersOrder and logicSubstance over formWhat successful companies sayUK company law requirements(b) Researching Acquisition 'run-out' strategyRecognition of assetsWhy does the management report exist?Cautionary words on modellingWhat is the 'magic' of gearing?Valuing propertiesOther UK company law that has a bearing on financial strategiesFurther strategy-related definitionsMaking a good return is the objective, but what exactly is ROI?Cash-flow-focused strategiesCosting models - definitionsInternal rate of return (IRR) or DCF yieldMore detailed analysis is requiredThe need for a consistent and robust processDepreciation costs are includedEnhancing qualitative characteristicsExternal ratiosKPIs, dashboards and detailed analysisRatio analysisHow you might forecastExamples of published income statementsThe dual approachInternal controlsThe need for investment appraisalGoing concern - a fundamental concept, also termed an underlying assumptionWhat is strategy? What does financial strategy mean?Statement of cash flowsSensitivity analysisRevision and learning pointersCash flow modelsExpenses/costs/purchases/overheadsBudget stagesLinks between the book's chapters and strategiesAnalytical reviewGearing or leverage ratiosFinancial strategy. Why be in business?Compounding and discountingCreative accounting/aggressive accountingOrder and logicThe wide scope of management accountingCash flow forecastsWhat is business strategy?Structural or pure financial strategiesIncome/sales/revenueContent, order and logic of this chapterInternal controls - accounting systems and procedures - prevention of error and fraudThe extractive strategyExamples of company cash flows and how they relate to strategiesAccruals concept - a fundamental conceptLogic and orderWhy we have to disclose ratiosCriteriaA simple balance sheet and a layout used for management purposesCorporate governance covers much more than ethicsNeed for a defined modelLinks between investment and financial strategyManagement reports - to assist with understanding strategy and its deliveryWeaknesses of traditional budgeting and how ZBB differsTime baseBookkeeping examplesFurther considerationsPublished statements of cash flowThe probability of future economic benefitLinks with strategyContent, order and logic of this chapterIncome statement - the P&L accountThe need for the most likely casePrudenceSources of fundsInterests in joint arrangements and associatesHow does management accounting support strategy?Content, order and logic of this chapterOrder and logicThe difference between 'forecast' and 'budget'A food producer and an engineering companyFuture developmentsTime value of moneyRandom eventsContent, order and logic of this chapterNo need for provisions or contingenciesStrategicThe objective or purpose of financial statementsAn arithmetical proof of a high-return strategyAccounting systemsShare valuesObjective of the standardEquityException reportingHow might materiality impinge on strategy?Content, order and logic of this chapterThe many uses of appraisal modelsFinancial position - the balance sheetFurther Companies Act 2006 sections of which executives should be awareIncome statements - P&L accountsWhy have accounting records? Why bother with bookkeeping?Mission statementsRisk identification and managementLessee accounting - basic approachGLOSSARYLeasesRevision and learning pointersInterests in subsidiariesSo how does all of this affect financial strategy?Long-term views are encouragedProject appraisal - an integrated approachContent, order and logic of this chapterLinks between published financial statements and financial strategyLeasing and off-balance sheet financeThe pyramid of ratiosFinally, does ZBB work?Net present value (NPV) or present worthBudget cultureExample BAppropriate design of reports is important
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